Roche chief warns of perfect pharma storm

Roche CEO Severin Schwan (photo) thinks the drug business will hollow out over the next few years, with low-rent generics makers on one side and innovative companies on the other--and very little in between. Thanks to demanding regulators, penny-pinching governments and greedy investors, pharma is in a "perfect storm" that will sweep the middle ground away, he told the FT Pharmaceutical and Biotechnology conference.

Here's how Schwan sees the next decade unfolding: Companies that manage to deliver "true innovation," with the kind of products that not only satisfy regulators but deliver outcomes data that impress budget-minded payers, will be able to withstand that perfect storm. Generics makers can as well, although their numbers will likely be reduced through consolidation as they seek to benefit from economies of scale. But the companies that only turn out "me-too" drugs, with "limited differentiation," won't get payers' money--and won't survive.

He might have been reading a new report from the consulting firm McKinsey, which also speaks of choosy regulators and price-squeezing payers. "They show little inclination to permit market access, price increases, and follow-on products without proof of substantial incremental clinical benefits," the report states. "As health care spending ... continues to rise in many countries, pharma costs will come under increasing scrutiny from governments under pressure to balance their budgets."

McKinsey figures the survivors will be drugmakers that tighten up and lighten up, shedding costs and underperforming assets. Smaller players--such as generics makers and innovative biotechs--have an edge over do-it-all Big Pharma. Get a strategy, the firm advises. "Companies that don't have one or stumble into something by accident will be picked apart, broken up, or taken out." Perfect storm, indeed.

- read the PharmaTimes coverage
- get more from Dow Jones
- see the McKinsey Quarterly piece